Unit II - Demand and Supply

 Demand and Supply

 Determinants
 Law – Assumptions and Exceptions
 Elasticity of Demand
 Types and Measurement of Demand Elasticity
 Application
 Demand Forecasting
 Significance and Methods
 Unit II : Concept of Utility
 The term utility was initially introduced by David Bernoulli and refers to the
satisfaction derived from consumption of a good or service.
 Thus Utility is the want satisfying power or capacity of a commodity.
 The utility analysis of consumer behaviour was initially discussed by three
contemporary economists - Jevons, Manager and Walras in the early 1870s.
However it was systematically presented by Alfred Marshall in his book 'Principles
of Economics' in 1890.
 In modern times utility is referred to as 'expected satisfaction'
 Characteristics of utility
 Utility is a subjective concept and cannot be objectively measured
 Utility is relative
 Utility has no moral or ethical significance
 Utility is not necessarily equated with usefulness, pleasure or satisfaction
 Utility depends upon the intensity of want
 Unit II : Concept of Utility
 Types of Utility
 Form Utility
It is created by changing the form / shape of the material. ( chair/ cabinet/ utensils)
 Place Utility
It is created by transporting goods from one place to another. Place utility is always more in
an area of scarcity than in the area of abundance
 Time Utility
Hoarding, storing and preserving certain goods over a period of time may lead to creation of
time utility for such goods. Trading essentially involves the creation of time utility.
 Service Utility
Service utility is created in rendering personal services to the customers by various
professionals like lawyers, doctors etc.
 Unit II : Concept of Utility
 Prof. Alfred Marshall assumes cardinal measurement of utility. He assumes utility
can be measured in numerical terms in its own units called 'Utils' The basic
concepts in the cardinal measurement of utility are Marginal and Total utility
 Total Utility, Average Utility and Marginal Utility
 Total Utility refers to the aggregate utility derived from the given total units of a
commodity purchased or consumed by a consumer
 Average Utility is the utility derived per unit of consumption of a commodity
 Marginal utility refers to the additional Utility derived from an extra unit of the
commodity purchased acquired or consumed by the consumer .
 Relationship between Total Utility and Marginal Utility
With an increase in consumption marginal utility diminishes and total utility increases
When Marginal Utility is zero total Utility is maximum
When Marginal Utility is negetive , total utility decreases.
 Unit II : Concept of Utility
 Law of Diminishing Marginal Utility
 The additional benefit which a person derives from a given increase in his stock
of a thing, diminishes with every increase in the stock th he already has.
 Assumptions
 Homogeneity
 Continuity
 Reasonability
 No change in tastes, habits and preferences
 Rationality
 Cardinal Measurement

 Exceptions
 Rare collections, Misers, alcoholics, music , poetry, reading and money
 Unit II : Concept of Utility
 Significance of the Law
 Consumer Equilibrium
 Universal truth
 Basis of Law of Demand
 Paradox of Value ( Value in use and Value in exchange -Water and diamonds)
 Practical Significance
 In business ( promotion of sales)
 In Public finance ( Taxation policies)
 In Welfare ( redistribution of wealth for promotion of welfare)
 Equi-marginal Utility / Law of substitution/ Phenomenon of Maximum Satisfaction
 Other things being equal, a consumer gets maximum total utility from spending his
given income when he allocates his expenditure to the purchase of different
goods in such a way that the marginal utilities derived from the last units of
money spent on each item of expenditure tend to be equal.
Concept of Demand
 Definition of Demand : The demand for a commodity refers to the quantity of a
commodity that a person is willing to purchase at different prices during a given period
of time . Thus ;
 Demand
 Desire for the commodity
 Capacity to purchase (Ability to pay / Purchasing power)
 Willingness to pay the price ( Will)
 Demand is always in relation to price and time
 Not an absolute term
 Always in reference to price and time
 Demand maybe ex-ante or ex-post
 Ex-ante ( Intended / potential) Ex-post ( already purchased)
 Demand maybe ‘Direct’ or ‘Derived’
 Direct ( Consumer’s demand) Derived ( Producer’s demand for factor inputs)
Individual and Market Demand
 Individual demand
 Refers to the quantity of a commodity that an individual would
purchase at a given price during a given period of time.
 Tabular Representation of levels of demand at respective prices is known
as the Demand Schedule .
 The curve obtained on plotting the demand schedule on a graph is called
a demand curve .
 The mathematical relationship between quantity demanded and price
while other things ( shift factors ) remain unchanged ( ceteris paribus) is
called a Demand Function or Demand Equation. These functions express
the inverse variation of demand with price .
Graphical Representation of Linear and Non-
Linear Demand Curve
Demand Function

Shifters / Determinants of Demand
 Factors leading to shifts in Demand Curve
 Distribution of Income and Wealth in the economy
 Relative Prices of Other Goods ( Substitutes and Complementary Products )
 Community’s / Consumer’s Tastes, Habits and Scale of Preferences
 Consumer Expectations
 Advertising and sales Propaganda
 Other Factors
 Taxation, inventions and innovations, fashion, weather conditions , customs , demographic
characteristics like age structure, sex ratio etc

 Variations and Changes in Demand

 Expansion / Extension and Contraction of Demand ( Along same Demand Curve )
 Increase and decrease in Demand ( Shift in the Demand Curve )
 Market Demand Curve
 Market Demand
 Refers to the total demand of all the individual buyers taken
together. i.e How much quantity the consumers in general would
buy at a given price during a given period of time constitutes the
total demand for the product.
 Thus Market Demand is the sum total of individual demands. It is
derived by aggregating all individual byers demands in the market.

 tmarket demand curve th

Law of Demand
 The Law of Demand states that ‘Other things remaining unchanged ( ceteris
paribus) , more of a product is demanded at a lower price and less at a higher
price’
 The other things referred to above ( Assumptions) are
 Prices of Related goods ( Substitutes and complements )
 Income of the consumers / buyers
 Tastes , Preferences and Fashions
 The above three are known as the shift factors in respect of the price demand
relationship . Change in any one of the above results in a parallel shift in the
demand curve.
 Exceptions to the Law of Demand
 Giffen Goods
 Veblen Goods (Articles of snob appeal)
 Speculation
 Psychological Bias / Illusion
 Law of Demand
 Law of demand states the inverse relationship between price and quantity
demanded, keeping other factors constant (ceteris paribus). This law is also
known as the ‘First Law of Purchase’.
 Graphical Representation of the Law of Demand
Elasticity of Demand
 Elasticity of Demand is defined as the responsiveness of demand to one of its
determinants while the other determinants remain unchanged.
 “ The Elasticity of Demand in a market is great or small according as the amount
demanded increases much or little for a given fall in price, and diminishes much or
little for a given rise in price.” – Dr. Marshall
 Elasticity of demand can be studied in reference to
 Price Elasticity
It is defined as the responsiveness of demand to a change in price ,while all the other things
remain unchanged. It is measure as a ratio of the proportionate change in demand to the
proportionate change in price.
 Income Elasticity :
It is defined as the responsiveness of demand to a change in income ,while all the other
things except income remain unchanged. Thus income elasticity is measured as a ratio of the
proportionate change in quantity demanded to the proportionate change in income.
 Cross Elasticity
 It is defined as the responsiveness of demand for good A to a change in price of good B, while
all the other things except the price of Good B remain unchanged.
 Price Elasticity of Demand
 Dr. Marshall has pro-founded the concept of price elasticity of demand. In
simple words, price elasticity of demand is the ratio of percentage change in
quantity demanded to the percentage change in price.
 In other words, price elasticity of demand is a measure of the relative change
in quantity purchased of a good in response to a relative change in its price. It
is thus, rate at which the demand changes to the given change in prices.
 So, we can say that it is the rate or the degree of response in demand to the
change in price.
 The co-efficient of price elasticity of demand can be written as
 Degrees of Elasticity of Demand
 The demand for various commodities does not change in the same proportion
as a result of changes in their prices . This effect of changes in demand due
change in price results in five degrees of elasticity of demand
 Some commodities have very elastic demand, while others have less elastic
demand. The different degrees of elasticity of demand are ..
 Infinite or Perfect Elasticity of Demand
 Perfectly Inelastic Demand
 Relatively Elastic Demand
 Relatively Inelastic Demand
 Unitary Elasticity
 Perfectly Elastic Demand
 Perfectly elastic demand is said to happen when a little change in price leads
to an infinite change in quantity demanded. A small rise in price on the part
of the seller reduces the demand to zero. In such a case the shape of the
demand curve will be horizontal straight line. The figure shows that at the
ruling price OP, the demand is infinite. A slight rise in price will contract the
demand to zero. A slight fall in price will attract more consumers but the
elasticity of demand will remain infinite (ed=∞). But in real world, the cases of
perfectly elastic demand are exceedingly rare and are not of any practical
interest.
 Perfectly Inelastic Demand:
 Perfectly inelastic demand is opposite to perfectly elastic demand. Under the
perfectly inelastic demand, irrespective of any rise or fall in price of a
commodity, the quantity demanded remains the same. The elasticity of
demand in this case will be equal to zero (ed = 0) In diagram DD shows the
perfectly inelastic demand. At price OP, the quantity demanded is OQ. Now,
the price falls to OP1, from OP, the demand remains the same. Similarly, if the
price rises to OP2 the demand still remains the same. In the real world,
however it is difficult to come across the cases of perfectly inelastic demand
because even the demand for, bare essentials of life does show some degree
of responsiveness to change in price
 Unitary Elastic Demand
 The demand is said to be unitary elastic when a given proportionate change
in the price level brings about an equal proportionate change in quantity
demanded. The numerical value of unitary elastic demand is exactly one i.e.
Marshall calls it unit elastic. In figure DD demand curve represents unitary
elastic demand. This demand curve is called rectangular hyperbola. When
price is OP, the quantity demanded is OQ\. Now price falls to OP1 the quantity
demanded increases to OQ2. The area OQ\RP = area OP\SQ2 in the fig.
denotes that in all cases price elasticity of demand is equal to one.
 Relatively Elastic Demand
 Relatively elastic demand refers to a situation in which a small change in
price leads to a big change in quantity demanded. In such a case elasticity of
demand is said to be more than one (ed > 1). This has been shown in figure.
DD is the demand curve which indicates that when price is OP the quantity
demanded is OQ1. Now the price falls from OP to OP1, the quantity demanded
increases from OQ1 to OQ2 i.e. quantity demanded changes more than change
in price.’
 Relatively Inelastic Demand
 Under the relatively inelastic demand, a given percentage change in price
produces a relatively less percentage change in quantity demanded. In
such a case elasticity of demand is said to be less than one (ed < 1). It has
been shown in figure 5

 All the five degrees of elasticity of demand have been shown in figure 6. On OX axis, quantity
demanded and on OY axis price is given. AB — Perfectly Inelastic Demand, 2. CD — Perfectly
Elastic Demand , 3. EG — Less than Unitary Elastic Demand ,4. EF — Greater Than Unitary
Elastic Demand, 5. MN — Unitary Elastic Demand.
 Measurement of Price Elasticity of Demand
 Essentially Three Methods are suggested to Measure the Price Elasticity of Demand
 Proportionate or Percentage Method
 Elasticity = % Change in Quantity Demand / % Change in Price

 Total Expenditure / Total OutLay Method

 TE = P * Q ( TE = Total Expenditure , P = Price and Q = Quantity Demanded )
 Point Method
 Elasticity =
Portion below the point of demand curve / Portion above the point of the demand Curve
 Or
 Lower segment of the demand curve / Upper segment of the demand curve
 Importance of Price Elasticity of Demand
 Helpful to a monopolist
 Helpful in formulation of Government Policies
 Helpful in the determination of factor prices
 Helpful in understanding the paradox of plenty
 Helpful in determining the terms of trade from international trade
 SUPPLY
 Supply refers to the quantity of a product offered for sale at particular price
during a particular given point of time .
 The relationship of the quantity supplied with the price offered by the market is
known as the supply schedule and its graphical representation is known as the
supply curve .
 Determinants / Shift factors of Supply
 Price ( Law of Supply)
 Price of related goods ( substitutes and complements)
 Cost of production
 Change in technology
 Goals of production ( profit maximisation / sales maximisation)
 Infrastructure( transport, communication, banking and insurance etc)
 Natural resources, time, economic and political environment
 Linear and Non-Linear Supply Curve
 Graphical Representation of Linear and Non- Linear Supply Curve
 Market Supply Curve
 Market Supply refers to the aggregate supply of a product made by all the firms at
a given market price. The market supply curve is obtained by the horizontal
summation of the supply curves of individual firms.
 The market supply curve is an upward sloping curve depicting the positive
relationship between price and quantity supplied. The market supply curve is
derived by summing the quantity suppliers are willing to produce when the product
can be sold for a given price.
 Changes and Variations in Supply
 Expansion / Contraction of supply
 This refers to movement along the same supply curve ( example due to rise in
price other things remaining constant). A rise in price leads to an upward
movement along the same supply curve ( expansion or extension of supply) as does
a fall in price lead to downward movement revealing fall in quantity supplied (
contraction of supply. It leads to the law of supply.
 Changes and Variations in Supply
 Increase / Decrease in Supply
 Increase refers to a downward right shift in supply curve resulting from a
favourable change in one or more of the shift factors other than price . Similarly
decrease refers to an upward shift to the left due an unfavourable change in one
or more of the shift factors.
 Law of Supply
 The Law of supply states that other things remaining unchanged ( ceteris paribus)
more of a product is supplied at higher price and less of it at a lower price .
Supply shares a direct relationship with price.
 Assumptions
 No change in ( cost of production, technique of production, scale of production,
government policies, transport costs, price of related goods) and no speculation

 Exceptions
 Backward bending supply curve of labour
 Savings,
 Rare collections
 Agricultural / perishable commodities
 Expectations of future prices
 Firm closure
 Law of Supply
 Graphical Representation of the Law of Supply
 Elasticity of Supply
 Elasticity of Supply refers to the responsiveness of supply to a change in one of its
determinants while all the other the other determinants remain unchanged. It is
thus responsiveness of supply to a change in price while all the other determinants
remain unchanged.
 Price elasticity of supply is measured as a ratio of the proportionate change in
supply to a proportionate change in price.
 Degrees of Price Elasticity in supply
 Perfectly Elastic Supply ( Parallel to X axis)
 Perfectly Inelastic Supply ( Parallel to Y axis )
 Unitary Elastic Supply
 More than Unitary Elastic Supply
 Less Than Unitary Elastic Supply
 Factors Affecting Price Elasticity of Supply are Nature of ( product, production
costs, production techniques, production period) , Future Expectations and
Degree of shiftability of resources.
 Market Equilibrium / Price Mechanism
 The term ‘equilibrium’ has been derived from Latin words ‘acqui’ meaning equal and
‘libra’ meaning balance. Equilibrium in economics implies a position of rest from which
there is no tendency to drift.
 According to Stigler, “ Equilibrium’ is a position from which there is no nett tendency
to move, we say net tendency to emphasize the fact that is not necessarily a state of
sudden inertia but may instead represent the cancellation of power forces”.
 In the words of Scitovsky ,’ A market or an economy or any other group of persons and
firms is in equilibrium when none of its members feels impelled to change his
behaviour.”
 Thus equilibrium is a market situation in which the market price has reached the level
at which quantity supplied equals quantity demanded.
 Equilibrium price is the price that balances quantity supplied and quantity demanded.
The equilibrium price at times is also called as the market-clearing price ( as at this
price everyone in the market has been satisfied)
 Equilibrium quantity refers to the quantity supplied and the quantity demanded at the
equilibrium price
Graphical Representation of Market Equilibrium
Equilibrium when Demand / Supply curves Shift

 Equilibrium price and /or equilibrium quantity shift change when the market
demand and / or market supply curves shift.
 An increase in market demand leads to an increase in the equilibrium price
and equilibrium quantity. ( Market demand curve shifts upwards to the right
with no change I the market supply curve
 An increase in the market supply curve leads to a decrease in the equilibrium
price and increase in the equilibrium quantity.. The market supply curve
shifts down and to the right demand remaining unchanged.
 An increase in both the market demand and supply ( shifts to the right by
both the curves) leads to an increase in the equilibrium quantity with the
change in equilibrium price remaining indeterminate ( when the magnitude of
the demand and supply shift is unspecified)
Effects of Shifts in Demand and Supply Curves on
Market Equilibrium
 Simultaneous Shifts in Demand and Supply
 In reality there are various situations which lead to simultaneous changes
in demand and supply
 The effect of these simultaneous changes on equilibrium price and
quantity is dependent upon the magnitude of these changes
 Simultaneous shifts in demand and supply curves can be segregated into
the following four cases.
 (i) Both Demand and Supply Decrease
 (ii) Both Demand and Supply Increase
 (iii) Demand Decreases and Supply Increases
 (iv) Demand Increases and Supply Decreases
Simultaneous Shifts – Both Demand and Supply Decrease
Simultaneous Shifts – Both Demand and Supply Increase
Simultaneous Shifts – Demand Decreases Supply Increases
Simultaneous Shifts – Demand Increases Supply Decreases
 Shift in Equilibrium
( What happens to price and quantity when
supply and demand shift )
No change in An Increase in A Decrease in
Supply Supply Supply
No Change in Price same Price decreases Price increases
Demand Quantity same Quantity increases Quantity decreases
An Increase in Price increases Price ambiguous Price increases
Demand Quantity Increases Quantity increases Quantity
ambiguous
A Decrease in Price Increases Price decreases Price ambiguous
Demand Quantity decreases Quantity Quantity decreases
ambiguous
 Government Controls on Prices
 The government may intervene in the market and mandate a maximum
price ( price ceiling) or a minimum price ( price floor) for a good or
service for eg. rent control policies, minimum wages.
 Price Ceiling refers to a legal maximum on the price at which a good can be
sold.
 When the equilibrium price is lower than the ceiling the price ceiling not binding.
Market forces naturally move the economy to equilibrium and the price ceiling has no
effect on the price or the quantity sold.
 When the equilibrium price is higher than the price ceiling, the price ceiling becomes a
binding constraint on the market. The forces of demand and supply tend to push the
price towards the equilibrium price but as the price reaches the ceiling price it legally
cannot rise any further . Thus the market price equals the ceiling price. At this price the
quantity demanded exceeds the quantity supplied resulting in shortage.
 In the situation of government imposing a price ceiling on a competitive market ,the
result is shortage in which case the sellers must ration the goods among potential
buyers. The rationing mechanisms are seldom desirable.( Queues, price discrimination
etc )
 Government Intervention - Price Ceiling
 In order to protect the interest of the consumers the government imposes
price ceiling or maximum price above which no one will sell the commodity.
This is called ‘price ceiling’ or ‘maximum price legislation’.
 Government Intervention -Price Floor
 Price Floor refers to the legal minimum on the price at which a good can be sold.This
is also referred to as ‘ The Minimum Price Legislation’
 The government often passes law to fix the minimum price or floor price at which
commodities may be sold. This minimum price legislation is introduced by the
government to protect the interests of producers, mainly agriculturists.
 Whenever there is a crash in prices, say of wheat, due to bumper production, the
government issues circular that no one would be allowed to sell wheat below the
stipulated price. Such is called the minimum price. Certainly, the legal floor price fixed
by the government is kept above the equilibrium price determined by the demand and
supply curves.

 When the price floor is below the equilibrium price, the price floor has no effect
 When the price floor is above the equilibrium price, the market price compulsorily becomes
equal to the price floor .In such circumstances the supply exceeds demand leading to a surplus
in the market. Thus a binding price floor causes a surplus.
 Surpluses resulting from price floors can also lead to undesirable rationing mechanisms (
inability to sell , personal biases of the buyers, racial and family ties etc)
Government Intervention – Price Floor
 When the price floor is below the equilibrium price, the price floor has no effect.
 When the price floor is above the equilibrium price, the market price compulsorily
becomes equal to the price floor .In such circumstances the supply exceeds
demand leading to a surplus in the market. Thus a binding price floor causes a
surplus.
 Surpluses resulting from price floors can also lead to undesirable rationing
mechanisms ( inability to sell , personal biases of the buyers, racial and family ties
etc)
Consumers’ and Producers’ Surplus
 Price mechanism is said to be self correcting in character. This is so because self
adjustment process comes into play automatically to restore market price as soon as
destabilizing force attempts to distort it.
 Governments especially in welfare-states often intervene in price mechanism through
taxation, subsidies , price floors and price ceilings to distort market price in the view
of public interest
 When consumers and producers surplus move significantly away from the desired price
levels the government of welfare states intervene in the free play mechanism with a
view to give an appropriate tilt in price movement .
 Consumers surplus refers to the excess of expenditures which the consumers are willing
to incur on a product over and above their current levels so that they may not have to
do without the desired level of consumption of the product.
 Producers surplus may in turn be defined as the excess of revenue realized by the
producers over and above that their supply schedule ensures. The producers surplus
may be determined by the area above the supply curve but below the horizontal line
passing through the point of intersection of the demand and supply curves.
 Consumers and Producers Surplus
 Consumer’s surplus is the area between the demand curve and the market
price. Producer’s surplus measures the aggregate profits of producers, plus
rents to factor inputs. producer’s surplus is the area above the supply curve up
to the market price; this is the total profit plus rents that lower-cost
producers enjoy by selling at the market price.
 Demand Forecasting
 Demand forecasting is related with future. Future is not certain and production of
goods is carried out in present to be used in future. This necessitates to get an idea
about future. This is carried out by the process of demand forecasting.
 Demand Forecasting is a forecast is a prediction about most likely future event
under assumed conditions. Demand forecasting is an estimate of future demand
based upon reasonable judgment of future probabilities of events affecting business
supported by scientific evidence
 Demand forecasting can be carried out at different levels. When each individual
production or service organization estimate demand for their products or services,
it is called micro level demand forecasting.
 When demand as estimated for a group of similar production or service
organizations, it is called industry level demand forecasting. When aggregate
demand for industrial output by the whole country is carried out, it is called macro
level demand forecasting.
 Macro level demand forecasting is based upon national income or aggregate
expenditure of the nation.
 Demand Forecasting
 According to Evan J. Douglas, “Demand estimation (forecasting) may be
defined as a process of finding values for demand in future time periods.”
 In the words of Cundiff and Still, “Demand forecasting is an estimate of sales
during a specified future period based on proposed marketing plan and a set
of particular uncontrollable and competitive forces.”
 Demand forecasting enables an organization to take various business
decisions, such as planning the production process, purchasing raw materials,
managing funds, and deciding the price of the product.
 An organization can forecast demand by making own estimates called guess
estimate or taking the help of specialized consultants or market research
agencies
 Objectives of Demand Forecasting
 Demand Forecasting helps in fulfilling objectives, Preparing the budget, Stabilizing
Employment and Production, Expanding organizations , Taking Management Decisions ,
Evaluating Performances etc…
 Based on time frame , demand forecasting can be divided into Short Term and Long Term
Forecasting:
 When forecasting is carried out for a period upto a year, it is referred to as short term
forecasting. It is useful to the firm for decisions related to production, pricing, purchase,
finance etc.
 When time period of forecasting is more than one year it is called long term forecasting.
The time period may be 3 – 5 years or even more than a decade. Such forecasts are useful
for long term policy making like growth, manpower planning, capital and financial
planning etc.
 Objectives and Steps in Demand Forecasting

 The Demand forecasting process of an organization can be effective only

when it is conducted systematically and scientifically.
 Significance of Demand Forecasting
 For Planning: Production involves committing resources in terms of raw
materials, labour and fixed machineries etc. It is necessary to have estimate
of future demand so as to avoid investments leading to excess capacity or
underproduction.
 2. Allocation of financial resources: Each firm has to allocate the limited
funds wisely so as to ensure continuity and growth of business. Demand
forecasting helps to allocate resources and aids in preparing good budget.
 3. Inventory Planning: Inventory is useful but idle resource. It is necessary to
keep only requisite amount of inventory avoiding unnecessary blockage of
funds and ensuring continuity of production also. This is achieved by
appropriate demand forecasting.
 4. Future Growth Plans: Demand forecasting helps in judicious allocation of
resources and aids in future expansion plans.
 5. National Policy Making: Macro level demand forecasting is useful for
national Planners for establishment of production capacities as well as
determining export import policy.
 Methods of Demand Forecasting
 1.Survey Method:
 This is the direct method of asking the users about their preferences. In case of survey methods
information is obtained by directly contacting the person and conducting the interview or by using
mail questionnaire. Based upon time and budget any one of the approach can be adopted.
 2. Expert Opinion:
 Experts may be asked to give their estimate of the demand based upon their experience. This can be
carried out by conducting a personnel focus group approach or the delphi method in which experts are
asked to give their estimate but are not brought in physical contact with each other.
 3. Experimentation:
 Experiments can be carried out in laboratories in controlled conditions to evaluate the consumer
behaviour or in actual market environment called market test. Market test is generally used for new
product wherein any past behavioral trend is not known. To ensure validity, test marketing should be
carried out on large population.
 4. Statistical Methods: Certain statistical methods can be used to estimate future demand. The
statistical methods also should be used in combination to have better accuracy and cross checking
purpose. The various methods are consumption level method, trend projections, the method of
moving averages, regression analysis and econometric model building. Some of the statistical tools
and techniques, as a part of quantitative methods for business decisions are Time series analysis or
trend method, Barometric Techniques or Lead-Lag indicators method, Correlation and Regression
and Simultaneous Equations Method.